This was a fascinating book, with ideas I've never run into in my (limited) reading of economics. To my mind, the best contributions of the book are:
The theories of empire in the book seem somewhat farfetched to me. Some of what she says sounds reasonable, but the analysis makes too many quick jumps to be satisfying. She's not the first to tackle the issue of empire, by any means, and I didn't feel her background in cities added a lot to the analysis.
Overall, though, this is a very interesting book. I've excerpted many of the best parts for my own reference, but I'd recommend reading the book in context if the ideas are of any interest to you. Her prose is remarkably easy to read; while blisteringly critical at times, she often takes great pains to avoid generalizations in the wrong places. She doesn't really fit into the convenient pigeonholes of the left or the right, which make explain her relatively low profile in general political culture.
Macro-economics—large-scale economics—is the branch of learning entrusted with the theory and practice of understanding and fostering national and international economies. It is a shambles. Its undoing was the good fortune of having been believed in and acted upon in a big way. We think of the experiments of particle physicists and space explorers as being extraordinarily expensive, and so they are. But the costs are as nothing compared with the incomprehensibly huge resources that banks, industries, governments and international institutions like the World Bank, the International Monetary Fund and the United Nations have poured into tests of macro-economic theory. Never has a science, or supposed science, been so generously indulged. And never have experiments left in their wakes more wreckage, unpleasant surprises, blasted hopes and confusion, to the point that the question seriously arises whether the wreckage is reparable; if it is, certainly not with more of the same.
Jacobs argues that the macroeconomic assumption that nations are the basic unit of analysis for economic life has been flawed, since its beginnings in Adam Smith's Wealth of Nations. "It also affronts common sense, if nothing else, to think of units as disparate as, say, Singapore and the United States, or Ecuador and the Soviet Union, or the Netherlands and Canada, as economic common denominators. All they really have in common is the political fact of sovereignty." [p. 32].
Whenever a city replaces imports with its own production, other settlements, mostly other cities, lose sales accordingly. However, these other settlements—either the same ones which have lost export sales or different ones—gain an equivalent value of new export work. This is because an import-replacing city does not, upon replacing former imports, import less than it otherwise would, but shifts to other purchases in lieu of what it no longer needs from outside. Economic life as a whole has expanded to the extent that the import-replacing city has everything it formerly had, plus its complement of new and different imports. Indeed, as far as I can see, city import-replacing is in this way at the root of all economic expansion.
It is important, if we are to understand the rise and decline of wealth, for us not to be fuzzy about an abstraction like "expansion" but to be concrete and specific about how expansion occurs and of what it consists. The expansion that derives from city import-replacing consists specifically of these five forms of growth: abruptly enlarged city markets for new and different imports consisting largely of rural goods and of innovations being produced in other cities; abruptly increased numbers and kinds of jobs in the import-replacing city; increased transplants of city work into non-urban locations as older enterprises are crowded out; new uses for technology, particularly to increase rural production and productivity; and growth of city capital.
These five great force exert far-reaching effects outside of import-replacing cities as well as within them, ultimately rippling out even to the remotest places.
I have to admit that I have some doubts about Jacobs' claim that import replacing lies at "the root of all economic expansion." I've played around with simple mathematical examples (no serious microeconomic supply/demand curves), and I can't make her examples really work in the net.
Another unfortunate consequence of preoccupation with national economies is that development experts [...] do not think of import-replacing as the city process it is. Thinking of it instead as a national process, they often advocate that completely developed factories (producing foreign imports of course) be set down arbitrarily any place—in little towns, in the countryside, usually wherever jobs are badly needed. All this, although it goes under the name of import-replacing or import substitution, is remote from the realities of where and how the feat of replacing imports is successfully pulled off in the real world; so remote from the realities that such schemes can, and indeed have, bankrupted countries instead of helping them to prosper.
For the moment, the point I want to pursue is the inherently crippled economic situation of supply regions that remain supply regions, that do not create import-replacing cities. The reason such regions are specialized and narrow is that, in the first place, their production for others so overwhelmingly outweighs production for themselves. That unbalance is exaggerated even further because of two peculiarities of the distant city markets on which supply regions depend, peculiarities which we can see at work on Uruguay. First, the distant markets were highly selective about what they wanted from Uruguay. Second, although the distant markets were composed of the markets of different cities and city regions, they were so much in agreement as to what they wanted from Uruguay that in effect they acted as one. This concerted selectivity is an enormously powerful force. When it comes to bear upon a region as a single force, unmediated by other city forces, it is irresistible as a shaper of narrow economic specialization.
The situation in clearance regions is exactly the opposite of what happens in regions being abandoned by workers in favor of distant city jobs, for just as the causes of the two phenomena are different, so are the results. When technology, reaching out from distant cities, clears a region of much of its population, the people who must leave the land are often worse off than before, but those who remain at work there are better off. Regions whose people simply leave for city work present a mirror image: those who leave improve their economic lot but, as explained in the preceding chapter, those who stay do not.
I am not suggesting that the Soviet authorities have delibarately kept agricultural productivity low, much less deliberately kept yields low. On the contrary; such a supposition would not jibe with the exorbitant investments the government sinks into agriculture for the express purpose of trying to improve yields and productivity. For another thing, I doubt that Soviet policy makers understand, any better than American policy makers have understood, the vital connections between agricultural yields and productivity on the one hand, and the availability or unavailability of city jobs on the other hand, much less the connections of the latter with the import-replacing process in cities.
What I am saying, rather, is that because these vital connections do exist, it follows that in any nation where sufficient productive city work is lacking, improvements in rural yields and productivity must leave large numbers of workers idle and redundant, or else rural yields and productivity must remain low. There are no other possibilities than these two. In the United States, this inexorability has worked itself out in the first way. In the Soviet Union it has worked itself out in the second way.
Some interesting thoughts on transplanted industries. The closing quote regarding auto plants is particularly telling—southern Ontario has been plagued by this game of competition for transplanted auto industry jobs for a long, long time.
So many regions of the world are stagnant and inert, don't generate industries of their own but nevertheless want industry, that the demand for industrial transplants far outruns the supply. To put it the other way, relatively so few cities and city regions generate transplants prolifically that they can't meet the demand. And among transplants that cities do produce, most can't move far. At any given time, only a small fraction of the industries which have been generated are self-sufficient enough to leap into distant regions lacking import-replacing cities of their own. And when we consider that even among these, many are capital-intensive, we must conclude that salvation from transplants is a vain hope for most regions avid to get them as a solution to unemployment.
Even in the United States, domestic demand for transplants now far outruns the supply. Thus situations like these, as reported in a Wall Street Journal article, have become commonplace:
Minnesota's governor ... is bristling at [South Dakota's] drive to lure Minnesota companies there. More than 60 have moved from Minnesota to South Dakota in recent years ...
[The governor] has pledged to fight to keep Minnesota business in the state and entice new employers ...
Economically starving Michigan finds that business-development scouts from Indiana and other states are trying to persuade its companies to relocate. "They're like vultures," one Michigan official says ... The state is countering by sharply increasing its promotion budget ... to lure high technology companies ...
[The entire Midwest] has become a target for recruiters from the Sun Belt and other parts of the country. They are eager to strengthen their states' industrial base by attracting machine-tool and similar companies from the nation's heartland.
The "Silicon Valleys" of both California and Massachusetts are being invaded by out-of-state economic development officials bent on luring away high-tech companies.
"A lot of states are embracing high tech as their savior," says the communications director for the Northeast-Midwest Congressional Coalition, a regional alliance. "The danger is that everyone is going after the same slice of the pie." ...
Many state and local officials worry that [the competition] will bring a new, damaging round of budget-busting tax breaks and other inducements to attract employers. Such bidding contests have erupted in recent years, notably during the battle among several states to land auto-production plants of foreign companies ...
[pp. 102-103, refs:"Domestic Feud: War Among the States for Jobs and Business Becomes Ever Fiercer", by Timothy Schellhardt, Wall Street Journal, Feb. 14, 1983]
The following quote follows up on a long discussion of the Tennessee Valley Authority (TVA) redevelopment project. This project sought to develop a region, and brought to bear Jacobs' five city forces on the region. The forces did not come from cities, but from development grants. The project worked for the first decade, but then resumed a steady process of decay. The region never developed a real city.
It is important, then, for us to understand the distinction between what development loans, grants and subsidies can do and what they cannot do. They can bring very swift, needed changes and produce real improvements immediately when they are well used. But the spending of the loans, grants and subsidies is the whole improvement to be expected. The rest is anticlimax, inertia and profound continued dependency on expansionary forces, usually inadequate, from distant cities. This is the miserable denouement the Algerian revolutionary leader Ahmed Ben Bella was describing when he bitterly summed up, in 1981, the experience of the Third World with a quarter of a century's development loans, grants and subsidies. "The north imposes its patterns and standards on us. We are importing more factories and more tools, but also more wheat and food products, and we are becoming increasingly more dependent."
He is quite right, but this is no cynical or uncaring plot on the part of "the north." The results are built into the nature of the transactions themselves. Poor regions of rich countries get the same results from such transactions as poor countries do.
Once we understand why unearned imports, whatever other usefulness they may have, are beside the point for catalyzing real economic development, we can understand, also, why the remittances that migrant workers send back to their poor home regions do so little to transform economic life there. Not having been earned right there, by city work, these benefits can play no part in economic life other than temporarily alleviating poverty. It is the same with all transfer payments from rich to poor regions. They alleviate poverty but inherently can do nothing to overcome the causes of poverty.
I have argued that all developing economic life depends on city economies; it depends on them by definition because, wherever economic life is developing, the very process itself creates cities and has probably always done so, even though some of those cities—like cities of the Hopewell Culture of the North American Indians which had vanished before the time of Columbus, or cities of the Olmec Culture in Mexico, lost even earlier—would seem strange indeed to us. I have also argued that all economic life depends on working links with cities. If this is correct, then it follows that no subsistence economy that uses the products and practices of economic inventiveness, no matter how residual and fragmentary, can be thought of as being truly alien to city life. Somewhere, sometime, it had links to creative cities, however briefly, however tenuously, however long ago.
The following quotation is probably the best story of this book. Jacobs ably describes the futility of trying to buy a first-world economy. Personally, I've included this long excerpt here simply because I love its form—with pure, simple description, she drives home the point better than any statistics ever could.
The Shah of Iran wanted an economy like America's, Japan's and northern Europe's. He thought he could have it if he head the same kind of equipment they had. So he set about getting it, advised by people nicknamed masachuseti by an Iranian sociologist, meaning technocrats equipped with an education and outlook popularly associated there with the Massachusetts Institute of Technology, where indeed many of the Shah's economic and technical experts had been trained.
A helicopter factory the government ordered in 1975 for the venerable city of Isfahan illustrates what was actually taking place and where, when the Shah imagined he was buying development. A contract to design an new nineteen-seat helicopter and to build and equip a factory to produce it was negotiated with an American corporation, Textron, along with a second contract agreeing to pay Textron for training the Iranian mechanics who would build and service the helicopters and the pilots who would fly them. Contracts like this were usual. Iran had entered into them with firs in Europe and Japan, as well as in the United States, for fertilizer factories, cement plants, steelworks, power plants, hospitals, automotive works, even entire agricultural villages. Some facilities were meant to produce primarily for Iran's domestic needs. Others, like the helicopter factory, were intended to produce both for the domestic economy and for export. Iran paid for these with oil, the idea being that by the time the oil ran out, Iran would no longer need to import sophisticated manufactured goods, would produce most of its own food, and would have alternate exports in place of oil—in short, a well-rounded, self-generating economy producing amply and diversely for itself as well as for others. That was the theory.
Textron, as its name suggests, began life as a textile factory but it had become a diversified conglomerate by buying up other enterprises, among them Bell Helicopter, formerly Bell Aircraft of Buffalo, New York, which was transplanted to Fort Worth, Texas. Bell was experienced at handling big, complex projects competently, which is why Textron got the contract; the Shah and his masachuseti did not want the project to bog down in the sort of confusion, waste and ineptitude that Uruguay had experienced when it tried to establish a manufacturing economy. Textron set up a new subsidiary, Bell Operations, in Euless, Texas, not far from the parent Bell company, to devote itself to this one job. While engineers in Euless worked out the design of the new helicopter and began work on designing the factory itself, other Bell engineers and management people set up a headquarters in Isfahan to prepare for the work there. The factory was to be a vast installation, comprising fifty buildings.
In due course, Bell Operations let the contract to build the factory to Jones Construction Company of Charlotte, North Carolina, another competent and experienced firm. Jones Construction subcontracted out the various specialities involved. For example, the Howard P. Foley Company of Washington, D.C., was responsible for design, supervision and purchase of electrical equipment. The purchase orders, sent from a Foley branch office in Dallas, Texas, went to six electrical wholesalers such as Graybar Electric Company of New York City, which, through a branch office in Dallas, ordered machinery, parts and materials from a bewildering array of manufacturers, large and small: for example, eletrical substations from Dis-Tran Products of Alexandria, Louisiana, and electrical switching gear from General Electric Company, which produced it in four different factories, located in Texas, North Carolina, Illinois and Iowa. Dis-Tran and General Electric were only two of more than ninety manufacturers from which Graybar bought its share of the Isfahan work. All those ninety, in their turn, drew on hosts of their own suppliers for materials, parts and tools. It was the same with the multitude of manufacturers who filled orders from the five other wholesalers like Graybar.
Another major specialty, heating, air conditioning and plumbing, was subcontracted by Jones Construction to the Sam P. Wallace Company of Dallas. Wallace drew from 150 manufacturers, firms such as Texas Automatic Sprinklers, which custom-designed and made the fire-protection sprinkler heads, in its turn, of course, drawing upon its own suppliers of tools, materials and services, just as the 149 other Wallace subcontractors were doing.
To arrange transportation to Isfahan of all these components and much, much more, Jones Construction and the Wallace and Foley companies jointly hired a freight forwarder, Daniel F. Young, Inc., which set up an office for the purpose in a suburb of Fort Worth. Young scheduled and coordinated collection of goods into shipping lots at the ports of Houston, New Orleans, Charleston, Norfolk, Baltimore and New York. For the ocean leg of the transport, Young used four shipping lines, and here at last we find an Iranian involvement. Chief among the carriers, taking on factory cargo at one or another American port every two weeks, month after month, was Iran Express: 49 percent owned by the Ulterwyk Corporation of Tampa, Florida, and 51 percent owned by Iran. Iran also held majority ownership in two of the other three cargo lines.
Although hundreds of similar contracts running into the tens of billions of dollars were carried to completion, the Textron contracts were not. In August 1978, when the factory was nearly a third finished, violent demonstrations against the Shah erupted in Isfahan. A bus for Bell employees was bombed, but martial law was declared and construction continued. However, at about this same time the government was finding it hat overcommitted its oil revenues, which were what still paid for everything Iran was buying from abroad. To get more foreign exchange, the government turned to borrowing against future oil revenues, and to cover its ballooning expenses within the country, it had taken to printing money at such a rate that prices were skyrocketing and Iran's indigenous commerce was collapsing.
In October 1978 Iran fell behind on its payments to Textron. As soon as payments stopped, Textron halted the work. All the way down the line, from the Euless drafting rooms of Bell Operations to the punch-press floors of obscure sub-sub-sub-sub-subcontractors in Chicago, Brooklyn and Philadelphia, workers were laid off, while in executive suites and clerical departments other American workers turned to hustling up new customers and selling to scrap and surplus-goods dealers equipment already manufactured but not yet dispatched to Isfahan. Bell tentatively considerd plans to produce the helicopter itself or in partnership with another foreign customer if one could be found. Two months after payments and work stopped, and shortly before the Shah was deposed, the Iranian government officially canceled the Textron contracts.
At about the same time that the Iranian government was having second thoughts on this project, a visiting reporter from The New Yorker magazine was interviewing a high school teacher, a devout Muslim, who had been one of the leaders of the anti-Shah demonstrations in Isfahan. The reporter, after first listening to the man's descriptions of political repression and growing social disorganization, introduced the subject of the economy. He asked the teacher who had graduated from the University of Teheran fifteen years before, whether it was not true, nevertheless, that in those fifteen years Iran "had taken large strides toward economic development."
No, said the teacher, "I have to say with great sorrow that our economic growth is based on a windfall called oil. If we consider where we are, and then where the progressive states like Japan are, we realize how little we have accomplished. When I think of Japan I think of a verse:
"Leila and I were fellow travellers on the road of life;
She reached her home, and I am still a vagabond."
But still, the reporter pressed him, even if some other countries had done better than Iran, "Iran had done quite well."
"What we see here is inflation," the teacher answered. "Prices for food have gone way up. What we see is the depletion of our oil reserves ... What we see is an agriculture worth zero ... Our industry is just an assembly line for products made in other countries..." At this point one of the listeners to the interview offered the reporter an apple. "He began to peel it for me," wrote the reporter, "but at the first stroke of the knife the blade separated from its handle. He held out the broken knife. `There you see it all.' he said in disgust. `Our country owns twenty-five percent Krupp in Germany, but in Iran we can't even produce a knife that cuts an apple.' "
The choice of the knife to caricature the gulf between the producers' goods Iran was buying and those it was capable of making was well taken. To be able to develop and make producers' goods is at the very heart of economic life, and to be able to make knives, various cutting edges, is basic to developing and making producers' as well as consumers' goods. An economy that isn't turning out for itself increasingly wide ranges of producers' goods is not making "large strides toward development," no matter what it is buying. One might as well infer that an oil tycoon, because he can buy paintings and sculptures, has become an artist.
Insofar as any development was involved in what the Shah was buying, it was all taking place somewhere else, not in Iran. Although the Shah's factories had (at first) all been earned by Iran, unlike facilities financed on credit or by grants and subsidies, they hadn't been earned by Iranian city work, and the earning had thus done nothing for Iran's capacity to build up versatile and productive city economies or, it follows, to generate city regions. Therefore, the purchases had only reinforced the country's already grotesque and unbalanced supply economy with its dependence on oil.
[pp. 135-139; refs: "Many U.S. firms felt the shock when Iran dropped one contract", by June Kromholz and Steve Frazier, Wall Street Journal, Mar. 8, 1979; "Despite its oil money, Iran's economy suffers from many shortages," by Ray Vicker, Wall Street Journal, Apr. 11, 1977, "Letter from Iran," by Joseph Kraft, The New Yorker, Dec. 18, 1978.]
Successful improvisation implies, among other things, appropriate technology for the circumstances at hand. "Appropriate technology" nowadays is a rather fashionable phrase carrying connotations of suitable devices for the rural poor. Unfortunately, many such devices turn out to be profoundly inappropriate—not because they don't work but because they work too well. For example, development of a bicycle-powered spinning wheel, a nice improvisation, was sponsored by the government of India, and proved to be a great success in the sense that one villager, equipped with it, can spin as much as twelve workers using traditional wheels. But the effect of this is devastating to India's poor villages. Solvent markets for cloth of hand-spun Indian yarn, which is exported to rich countries, are not expanding at any such rate. Most Indians themselves wear cloth of machine-spun fibers, which are much cheaper; they can't afford cloth of hand-spun yarn even when it is made by the bicycle-powered wheel and ill-paid workers. The new wheel thus simply displaces poor village spinners who have no alternate work or incomes. Therefore, having sponsored development of the wheel, the government cannot promote its use.
[p. 151, ref. "India making work for village industry," Toronto Globe and Mail, Mar. 2, 1979 (reprinted from The Economist)]
If one wanted to define economic development in a single word, that word would be "improvisation." But infeasible improvisation is fruitless, so it would be more accurate to say that development is a process of continually improvising in a context that makes injecting improvisations into everyday economic life feasible. Cities in volatile trade with one another create that context. Nothing else does, which is why backwards cities need one another.
Ideally, at a time when a city's exports are doing well, it needs to receive as wide a range and as great a volume of earned imports as it can, especially from other cities, because those funds of earned imports are the grist the city must have for its vital process of import-replacing. Conversely, at a time when its exports are in decline, imports should ideally become expensive because to escape decline from diminishing export work a city desperately needs to replace wide ranges of its imports with local production. It also needs maximum stimulation of tentative new types of export work it may soon be capable of casting up. In other words, with falling exports a city needs a declining currency working like an automatic tariff and an automatic export subsidy—but only for as long as they are necessary. Once its exports are doing well, it needs a rising currency to earn the maximum variety and quantity of imports it can. Individual city currencies indeed serve as elegant feedback controls because they trigger specifically appropriate corrections to specific responding mechanisms.
This is a built-in design advantage that many cities of the past had but which almost none have now. Singapore and Hong Kong, which are oddities today, have their own currencies and so they possess this built-in design advantage. They have no need of tariffs or export subsidies. Their currencies serve those functions when needed, but only as long as needed. Detroit, on the other hand, has no such advantage. When its export work first began to decline it got no feedback, so Detroit merely declined, uncorrected.
The flawed and inappropriate feedback that cities get from consolidated national currencies works itself out differently, depending upon the international trade of their countries taken as a whole.
Tariffs, necessary though they are in nations with undeveloped or long-stagnated cities and appreciable international trade in resources or rural products, are far from an ideal remedy for faulty and deadening feedback to cities. Tariffs create obstacles of their own to volatile intercity trade. They are particularly hazardous for small countries, not only because they invite retaliatory barriers but also because, in the nature of things, the cities of small nations need heavy and volatile trade with cities across national boundaries. And in large nations or small, tariffs victimize rural economies lying outside of city regions. In Canada, most international exports are agricultural or resource goods, and on this trade the international exchange value of Canada's currency—and its ability to command international imports—rests. The city benefiting most from Canadian tariffs is Toronto, and naturally it is hated by Canadians in the supply regions of the country. They call it Hogtown, and see national tariff policies as being rigged to drive up their own costs of living for the benefit of Toronto. They are right; and yet Canada would be an extremely poor and backward country without tariff protection. Nor does it do all that well at city development because of yet another feedback flaw I shall discuss shortly, having to do with relationships among cities in the same nation.
Whichever city in a nation happens to be contributing most heavily to the international export trade is apt to be the city whose needs are best served by the national currency. The city with that edge probably gets cheaper foreign imports, and probably gets an automatic tariff and export subsidy (with respect to foreign trade only) just when it needs such help. If one city and its region gets an edge of that sort, even a small edge, we must expect that the advantage will make its economy more vigorous and more successful than that of other cities in the nation. The edge, once gained, must logically be self-intensifying and self-reinforcing because the more economically successful that city is, then the more heavily its production will weigh in the total national production and total foreign trade of the nation's cities. The more heavily it weighs, the more closely the feedback from the national currency will suit that specific city. But it won't coincide with other cities' needs and the timing necessary and natural to them; it may even contradict them outright, certainly must deaden them. Naples has little influence on Italian international trade and hence on the country's currency fluctuations as a consequence of the trade. Milan and the great overlapping conglomerations of city regions of which Milan forms the nucleus have an enormous effect on Italy's international trade. With which city's needs and timing will the national currency's fluctuations best coincide?
What I have just been presenting is a hypothesis. If it is correct, what we should expect to find in a nation with a large international trade in city goods is not a nation of many city regions—as one might offhand expect—but rather a nation with one overwhelmingly important city and city region, along with other cities that are feeble at generating regions of their own. And we should expect that with the passage of time the one "elephant" city would become increasingly dominant economically, and the others increasingly passive and provincial.
She continues to describe London, Milan, Paris, Copenhagen, Stockholm, the "Ring City" of the Netherlands which includes Amsterdam and Rotterdam, the curious situation of Japan's urban regions (a "bowtie" around Nagoya with Tokyo and its region as only a part of this whole). The American situation is discussed separately within the context of empires.
I am going to argue that the very policies and transactions that are necessary to win, hold and exploit an empire are destructive to an imperial power's own cities and cannot help but lead to their stagnation and decay. Imperial decline is built right into imperial success; the two are part and parcel of each other. Furthermore, the same types of policies and transactions that make the declines of empires inevitable can also speed stagnation and decay in nonimperial powers that adopt them.
I say "speed" stagnation and decay, rather than "cause" stagnation and decay because, as we have seen, cities in nations that preside over numerous cities are handicapped by feedback flaws in any case; those come with the territory. They make it chancy or impossible for cities that begin to decline to reverse themselves [...], and they also hamper or prevent the formation and flourishing of new cities. All this is especially disadvantageous to large countries in need of many city regions. The special policies I am going to explore and the transactions that sustain them are additional to feedback flaws and at least in large part are the responses of governments to failures of cities and the obdurate poverty of regions in which cities persistently fail to develop.
These policies and transactions, no matter what the motives for them, are all killers of city economies. They fall into three main groups: prolonged and unremitting military production; prolonged and unremitting subsidies to poor regions; heavy promotion of trade between advanced and backward economies. Different as these seem superficially, these policies and the transactions that sustain them are similar in the harm they work.
Consider in this light that there are three master characteristics of all developing and expanding economies, three kinds of major changes taking place as they rise and flourish.
First, taken as a whole, economic life becomes more urbanized and less rural. City work and intercity trade show the greatest gains both absolutely and proportionately. Rural production and trade increase as well, but as by-products of the city activity.
Second, as city trade expands, it sparks additional cities into life, mainly in what had been subsistence and supply regions, and draws them into volatile city trading networks.
Third, increased quantities and proportions of all goods and services being produced are imported into cities and become available there to the process of import-replacing. This is a consequence of the two preceding changes and it is also a condition for their continuation.
Those changes are nothing less than economic development and expansion: the very dynamic of development itself, in action.
When economic life is in process of declining and contracting, exactly the opposite changes are occurring.
First, taken as a whole, economic life becomes less urbanized, more rural. City work and intercity trade decline proportionately as a share of total economic activity, while rural production and trade increase their proportionate share.
Second, existing cities stagnate and decline, while insufficient new cities arise to compensate for the losses.
Third, decreased quantities and proportions of all goods and services being produced are imported into cities and thus fall outside the import-replacing process. As cities stagnate and stop replacing imports significantly, even the imports they still receive do not serve import-replacing. This is a consequence of the two preceding great changes.
The trouble, then, with transfer payments and other subsidies as means of keeping economic life chugging away is that, feeding voraciously upon city earnings as they do, they reduce intercity trade in favor of trade between cities and inert economies; divert earned city imports to economies that cannot replace imports; and reduce cities' abilities to serve as good customers for one another's innovations. Subsidies milked from cities are for these reasons profoundly antidevelopment transactions.
A group of political scientists associated with Princeton University's Center for Research on World Political Institutions has studied many instances of dissolution or disintegration of sovereign political units—nations, empires, confederations—occurring in recent times or in the past. The object was to discover what common forces, if any, bring about political disintegration. The researchers concluded that the "load" carried by the failed political unit had increased while, at the same time, its "capability" had decreased. But what are "load" and "capability" in the concrete?
"Excessive military commitments" were identified as a usual factor of fatally increased load.
Many of the root processes at work in natural ecologies and our economies are amazingly similar, and we can learn much about success and failure in our own arrangements by noticing, for example, that the more niches that are filled in a given natural ecology, other things being equal, the more efficiently it uses the energy it has at its disposal, and the richer it is in life and means of supporting life. Just so with our own economies: the more fully their various niches are filled, the richer they are in means for supporting life. That is another way of saying that economies producing diversely and amply for their own people and producers, as well as for others, are better off than specialized economies like those of supply, clearance and transplant regions. In a natural ecology, the more diversity there is, the more flexibility, too, because of what ecologists call its greater numbers of "homeostatic feedback loops," meaning that it includes greater numbers of feedback controls for automatic self-correction. It is the same with our economies. I have labored the point that too few homeostatic feedback loops is precisely the failing that renders so disastrously unstable economically and their cities so poor at economic self-correction.